Weekly Top Stories - 1/3

This week in the newsletter, we write about E*Trade possibly adding crypto trading to its platform, a growing sector of AI agent tokens, and the IRS delaying crypto cost-basis reporting rules until next year (not tax advice).

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E*Trade Considers Adding Crypto Trading to Platform

E-Trade considers adding crypto trading. Morgan Stanley’s online brokerage, E-Trade, is considering adding crypto trading functionality, as reported by The Information. The firm is anticipating a “more favorable crypto regulatory environment” during President-elect Trump’s new administration. As of 2020 when it was acquired by Morgan Stanley, E-Trade had 5.2 million client accounts with more than $360 billion in retail assets.

In November, Charles Schwab CEO Rick Wurster told Bloomberg that his firm was also considering launching crypto trading if regulators allow it. Major brokerages like Fidelity, Robinhood, and Interactive Brokers already support trading in bitcoin and ether, but brokerage firms affiliated with major banks have yet to offer such services.

OUR TAKE:

It is only a matter of time before the world’s largest brokerages offer access to the best-performing asset class. But while we view this as inevitable, some important regulatory barriers must ease to allow their entry. SAB 121 is one key barrier; the SEC accounting guidance currently requires publicly traded companies to carry client-custodied digital assets on their balance sheets, and due to separate bank capital requirements, has made it economically impossible for big banks or their subsidiaries to hold client crypto assets. Recall that SAB 121 was extremely unpopular, and both houses of Congress voted on a bipartisan basis to overturn it in May 2024, though Biden vetoed the overturn. We expect that the new SEC will provide more pathways to avoid SAB 121 reporting, as it did in September.

In addition to removing SAB 121 applicability, the big banks also want the Office of the Comptroller of the Currency (OCC) to rescind interpretive letter 1179, which requires banks to get prior approval before engaging in crypto activity. Such activities were previously permissible under the leadership of Acting Comptroller Brian Brooks during the first Trump administration, when the OCC issued interpretive letters 1170 (allow banks to custody crypto), 1172 (allow banks to hold stablecoin reserves), and 1174 (allow banks to use blockchain networks and stablecoins for payments). Other authorities or permissions may come to traditional finance via regulation or legislation, but an easing at the OCC is likely to come quickly. As the primary prudential regulator for national banks, the OCC will play a key role in allowing and overseeing the entrance of banks into the crypto world. However, some banks and depositories will need permission from the Federal Reserve (bank holding companies like Goldman Sachs) or state regulators (such as state trust companies like State Street).

In any case, allowing banks to custody digital assets and interact with public blockchains will serve as a launching point for the further maturation and institutionalization of bitcoin and crypto. For example, once banks can custody bitcoin and ether, it becomes much more likely that the SEC will allow the spot-based ETFs to perform in-kind creations and redemptions. Banks could begin offering lending and financing services for digital assets, such as offering margin trading on the back of bitcoin collateral, or the creation of interesting structured products to offer different types of bespoke exposure to the underlying digital assets.

The entrance of traditional finance into the digital asset markets will help bring liquidity, unlock new pools of capital, normalize and standardize investment in digital assets, and bring confidence to traditional investors who will be able to access exposure through their traditional, highly regulated brokerages. All of these will happen at some point and, with President-elect Trump and his new administration signaling a new golden era for digital assets, that point might come sooner than people realize. -Alex Thorn

AI Agents, the New 2025 Meta

Token prices for crypto AI Agents are soaring to new all-time highs, with ai16z (apparently no relationship to the prominent venture firm) and Virtuals leading the way up 180% and 68% respectively over the past 14 days. These new coins are essentially overseen by and paired with LLM-powered chatbots. The hype around AI agent projects is primarily driven by increased attention to AI agent infrastructure like Virtuals, which functions as an AI agent launchpad. The most popular AI agent from the Virtuals ecosystem, Aixbt, highlights the potential of the platform through its ability to host user-generated agents. aixbt is an informational agent valued at $545m with over 267k followers on X that posts high signal crypto topics along with answering questions from X users. While aixbt is one of many AI agents launched through Virtuals, this trend of user-generated AI agents has motivated ai16z to launch their own Layer 1 blockchain to facilitate an AI agent launchpad.

According to Coingeko, the total value of all AI agent token projects sits at $15.8bn, with over $2.5bn of 24h trading volume as of December 2, 2025. Virtuals, aixbt, and Artificial Superintelligence Alliance are the only 3 AI agent projects in the top 100 tokens by market cap.

OUR TAKE:

While BTC, ETH, SOL and other majors were down in the final weeks of 2024, crypto AI agent coins reached new highs. This surge represents a shift from the previous crypto AI cycle's focus on decentralized compute to agent-based products. Platforms like Virtuals enable rapid agent deployment, resulting in increased experimentation across news aggregation agents, autonomous investment vehicles, and AI digital creators. The possibilities for AI agents leveraging blockchains’ permissionless nature have driven significant speculation, with infrastructure providers like Virtuals and ai16z gaining significant traction. The crypto AI agent ecosystem distinguishes itself through its open-source approach to agent infrastructure. Ai16z's "Eliza" agent backend, now forked over 2000 times, exemplifies this commitment to open-source AI agent development. Despite the plethora of unexplored crypto AI agent use cases, increasing market attention and investment suggest AI agents will be a dominant blockchain narrative in 2025, with the sector currently in price discovery mode. -Gabe Parker

Upcoming Changes to Crypto Tax Reporting Requirements

IRS delays crypto cost-basis reporting rules. On December 31, the US Internal Revenue Service (IRS) postponed a new ruling (Section 6045, originally set to take effect in 2024) that would have defaulted crypto holders on centralized exchanges (CEXes) to use FIFO accounting to report taxes if no other preferred accounting method is selected. With centralized exchanges not yet prepared to offer users a choice, the default would have been FIFO. FIFO (first in, first out) assumes the earliest purchased crypto assets are sold first - if the oldest purchased crypto assets are those with the lowest cost-basis, FIFO accounting would maximize the calculation of capital gains for many taxpayers. The automatic application of the FIFO rule is now postponed until the end of 2025, allowing crypto investors to maintain their own records (including through third-party tax software providers) until that date and providing brokers more time to support all accounting methods (e.g., HIFO (highest in, first out) and Spec ID).

In a related development on December 27, the US Treasury and IRS issued final regulations regarding reporting requirements for trading front-end service providers, or "DeFi brokers". Set to be implemented in 2027, the ruling would subject DeFi platforms including decentralized exchanges (DEXes) to the same reporting requirements as CEXes, requiring all "brokers" to disclose gross proceeds on sales of crypto assets through a Form 1099, including information regarding taxpayers involved in the transactions.

In response to the new requirements, crypto industry groups have pushed back including:

• The Blockchain Association, the DeFi Education Fund, and the Texas Blockchain Council are jointly suing over the rulemaking, arguing that it exceeds the agencies’ statutory authority and is unconstitutional. "The rule fails to recognize the decentralized nature of this technology, where many actors simply do not have access to the information the IRS is now demanding," said Texas Blockchain Council President Lee Bratcher.

• Consensys lawyer Bill Hughes highlighted that the new ruling "applies to the sale of every single digital asset - including NFTs and even stablecoins (all cost no benefit from a revenue perspective)."

• Uniswap Labs CEO Hayden Adams posted: "Terrible ruling aimed at kneecapping defi in the final days of current admin. Hopefully it’s thrown out using the congressional review act and if not it likely won’t stand up to legal challenges".

OUR TAKE:

Crypto taxpayers will see partial relief this upcoming tax season over the delayed cost-basis reporting rules, though the current proposed changes to tax reporting requirements leave a lot to be desired. Many CEX users (those that do not specify a different accounting method) would likely face unfavorable taxes if defaulting to FIFO accounting especially during a bull market. Depending on when the assets were purchased, capital gains calculations for most long-term holders will likely be higher using FIFO (although this could be beneficial if the gains are taxed as long-term capital gains rate rather than as ordinary income).

In addition, the finalized ruling by the Treasury/IRS over new reporting requirements for "DeFi brokers" is not only unfavorable, but it is also unreasonable. We, along with many other industry proponents, argued during the comment period that many DeFi applications are not in a position to know taxpayer information and thus could not comply with broker reporting requirements to the same degree as CEXes and other brokerages. The Treasury/IRS' approach for taxpayers to track cost basis on a per-account or per-wallet basis rather than the "universal wallet" approach is not fitting for crypto given their interoperable nature, and it creates significant challenges for those that self-custody or actively use DeFi. We are hopeful that the IRS or Congress will block or amend the rule so a more thoughtful approach to taxing crypto can be implemented, ideally one that is beneficial for both crypto platforms and end users alike. - Charles Yu

Nothing in this newsletter is or should be considered tax advice. You should consult a tax advisor to understand any new tax rules and how they may impact you.

Charts of the Week

The cost of Ethereum blobs has remained at historically elevated levels since the beginning of December, leading to substantial increases in the onchain costs for rollups. Blobs have more or less been costless for much of the time since EIP-4844 was activated on March 13, 2024; some isolated periods marked by “blobscriptions” (March – April 2024) and high traffic on rollups (June 2024) led to outsized demand for blobs that sent blob costs temporarily soaring. However, rollups have spent more on blobs over the last thirty days than over any other thirty-day period since their activation date.

The substantial and persistent rise in fees has prompted some rollups to adjust their approach to posting batch data to Ethereum. Taiko, a based rollup that requires transaction data to be posted to Ethereum to keep the chain functioning, for example, has opted to blob less each day. This has led to higher block times on the chain, which can negatively impact the experience for some users. Arbitrum, on the other hand, decided to pivot away from EIP-4844-style data posting and rolled back to the call data approach, which was the standard method of posting batch data before blobs were introduced. Blobs were developed to make data costs for rollups cheaper, however, heightened demand combined with the finite number of blobs per Ethereum block has made them more expensive than using call data at points.

Other News

• Spanish banking giant BBVA to provide crypto trading service

• Terraform Labs co-founder Do Kwon will face fraud charges in the US

• MicroStrategy announced the purchase of an additional $209 million worth of Bitcoin

• El Salvador now holds Over 6,000 bitcoin

• Tron's T3 financial crime-fighting unit hits $100M in frozen USDT